Oil supplants ag as ND’s top economic driver

Activities associated with oil and gas extraction have knocked the agricultural sector from its pedestal topping North Dakota’s economy.
That, at least, is shown in statistics by the U.S. Bureau of Economic Analysis that measure each state’s gross domestic product, a trend that began in 2011 and continued through 2013.

By:
Patrick Springer , Forum News Service

Activities associated with oil and gas extraction have knocked the agricultural sector from its pedestal topping North Dakota’s economy.

That, at least, is shown in statistics by the U.S. Bureau of Economic Analysis that measure each state’s gross domestic product, a trend that began in 2011 and continued through 2013.

Last year, North Dakota’s mining industry — dominated by oil and gas production — totaled $8.5 billion, compared with $7.3 billion for agriculture. Together, they accounted for 28 percent of North Dakota’s $53.6 billion economy.

Another major sector in the state’s economy — finance, insurance and real estate — totaled $7.7 billion, according to the BEA figures.

The finance industry reflects growth in the energy and agriculture sectors, as do transportation, construction and manufacturing, which benefit from the ripple effects of agriculture and the oil boom, economists say.

A couple of important footnotes are in order, however: Farming, valued at almost $5.3 billion in 2012, the most recent figures available that show categorical breakdowns, more than doubled oil and gas extraction, at $2 billion.

Also, economic activities closely tied to agriculture, including food processing, are grouped under manufacturing, a category totaling $751 million in 2012.

Also, a computer model of North Dakota’s economic base, which measures goods and services produced for export outside the state, found agriculture the top sector in 2011, the most recent analysis available by economists at North Dakota State University.

As a component of North Dakota’s economic base that year — by coincidence, the year mining surpassed the farming sector in the federal statistics — agriculture totaled $7.8 billion, compared with almost $7.2 billion for oil and gas production and refining.

The petroleum industry grew much more rapidly than agriculture from 2000 to 2011, however. Oil and gas grew at fivefold the rate of agriculture during the period, when adjusted for inflation, according to the North Dakota State University model of North Dakota’s economic base.

The diverging trends are even starker over a longer time horizon. Agriculture’s share of the economic base declined from 37.1 percent to 23.5 percent from 1990 to 2011, while the petroleum sector doubled from 7.2 percent to 15.9 percent during the period.

Meanwhile, agricultural processing and miscellaneous manufacturing remained relatively flat over the two decades, dipping from 8.4 percent to 7.3 percent of the economic base.

David Flynn, a professor and chairman of economics at the University of North Dakota, says the gross domestic product figures paint a clear picture of oil and gas supplanting agriculture, at least for a time.

“Oil and gas is bigger right now, is a clearly important driver right now” of the state’s flourishing economy, Flynn says.

Given the price volatility of farm commodities and petroleum, and the significance of each sector in fueling North Dakota’s economy, the two industries could see-saw over time, trading spots as the state’s premier industry, he says.

“These two industries clearly are vital drivers of the state’s economy,” Flynn adds. “My suspicion is they’ll jump back and forth in the pecking order.”

Also, Flynn and others note that oil and gas reserves are finite, and ultimately will be depleted, even decades from now, whereas agriculture is a renewable source of wealth.

Dean Bangsund, an economic researcher at NDSU and a member of the team that maintains the model of the state’s economic base, says the different methods of tracking the economy make clear-cut comparisons difficult.

“You need to be careful making these statements about which industry is bigger,” he says.

“Historically, ag has been a small percentage of the economy based on GDP,” Bangsund says, referring to measurement of the state’s gross domestic product, noting that food processing and farm implement manufacturing, as well as sale of fertilizer and other inputs are not included.

NDSU economists routinely do studies tallying the economic impact of various industries, including petroleum and segments of the agricultural economy, including certain commodity crops like wheat, barley and sugar beets.

But so far economists have not tried to conduct a comprehensive and detailed analysis combining the diverse components of livestock and crop agriculture, Bangsund says.

“We have been trying to say there would be some value to the state of understanding the entirety of the ag industry, not just pieces of it,” he says.

Doug Goehring, the North Dakota agriculture commissioner, says he does not dispute the figures showing that, for now at least, petroleum has overtaken agriculture as a segment of the economy.

He notes, however, that 20 percent of the state’s cropland went unplanted last year, and farm commodity prices dropped 40 percent to 60 percent.

“That hurts that final dollar,” he says. With a smaller price drop, and better weather, agriculture could have regained its top spot last year, Goehring says.

Farmers understand the economic benefits that the energy industry has brought to the state, he adds.

“For the most part, we’ve been very happy about what’s happened with the energy industry as a whole,” says Goehring, who also serves on the state Industrial Commission. “It certainly has created some challenges.”

Investments to improve roads and railroad infrastructure will help farmers transport their grain in the future, he says, though he notes the current rail delays — caused in large part by increased shipping of oil by trains — plague many farmers and elevators.

“Things will be better,” Goehring says, noting that at some point oil and gas will be on the decline.

Bangsund and Flynn agree that the focus shouldn’t be so much on what segment tops the state’s economy.

Business and political leaders need to ensure that infrastructure and services keep pace with economic growth, to sustain the boom, Bangsund says.

North Dakota should continue to strive to diversify its economy beyond its natural resource foundation, Flynn says.

The information sector, which includes publishing, broadcasting and Internet services, are a much smaller share of North Dakota’s economy than the national economy, he says.

“The way I think of it is, North Dakota has two very strong sectors that are not necessarily strong in the rest of the country,” Flynn says. “The oil economy is the low-hanging fruit right now. It’s a very profitable industry to get into for a lot of people.”

For its part, the petroleum industry is reluctant to crow about its rising place in the pecking order of North Dakota’s economy, or engage in comparisons to agriculture.

“Of course energy has a huge economic impact on the state, but it takes all sectors to make an economy,” says Tessa Sandstrom of the North Dakota Petroleum Council, which represents the industry. “Both obviously are very large in the state and both equally important.”